PT Bank Mandiri (Persero) Tbk (BMRI) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen, and welcome to PT Bank Mandiri's First Quarter '22 Results Briefing. And thank you all for joining us today. My name is Laurensius, Head of Investor Relation. And together with us today, our speakers, we have Pak Darmawan, our CEO; Pak Siddik, our Chief Risk Officer; Pak Sigit, our CFO; and Pak Tim, our IT Director. Before we start, I strongly encourage you to download both our presentation material and financial statement currently available on the IR webpage of Bank Mandiri. [Operator Instructions] We are also happy to take questions via e-mails afterward, and we'll try our best to reply to your question as soon as we can. Now without further ado, I would like to hand the presentation to Pak Darmawan, our CEO. Please, Pak. Thank you.

Thank you very much, Lau. Allow me to start this discussion by providing a short commentaries from the macro point of view. As a country, although the fight against the COVID crisis is not entirely out of the way, our ability to navigate and adapt to this difficult situation has improved meaningfully. This is true for the government, the businesses and the people in general. The left chart shows Mandiri spending index, which we developed using our own internal customer transaction data. It indicates a slight decline in January and February this year due to the Omicron activity restriction followed by a recovering trend in March, which is positive. As activity slowly reopens, we expect a rebound in the GDP growth to 5.2% this year compared to 3.7% last year. Reopening may also lead to higher inflation, but expected to remain within manageable level. Lastly, we expect around 50 to 75 basis points increase in the benchmark rate this year, which will likely benefit our margins. In general, our strategy execution positively impacted Mandiri's financial performance in the first quarter 2022. We identified loan growth, cost of funds and CASA, net interest margin, operational cost management, asset quality management and results from our digital initiatives to be key strength during the quarter. Pak Siddik, our Chief of Risk, will later on run through the details on asset quality trend. On the other hand, yield and growth in payroll loans, despite improving were the key challenges we must address. In summary, the first quarter 2022 gave us a good start for the year. Consolidated profit grew by 70% year-on-year. Pre-provision operating profit grew by 26%, loans and CASA grew by 9% and 12% respectively, all thanks to well-managed ratios such as NIM improving, lower cost to asset and lower cost of credit. As a result, return on asset as well as return on equity increase in first quarter 2022. This slide shows the bank's loan growth profile. By a segment, growth was led by SME, micro commercial and some consumer loans. This is in line with our strategy to move towards higher-yielding assets. Our subsidiaries, BSI and Bank Mantap also contributed to the overall consolidated loan growth. While corporate loan growth is on the lower end, it is worth noting that we are growing meaningfully more toward the high-quality private corporates as well. The bottom left chart shows you that -- and against a total corporate loan growth of 6.1% year-on-year, private corporate grew by 12.1%, while state-owned corporate was flat. Moreover, growth by type of use focused more on the investment loans at 13.2% year-on-year, while consumer loans grew by 10% and working capital was flat. Our digital initiatives and more importantly, the impact it brings to our financial performance has been delivering positive progress. The new super app Livin' has been downloaded more than 12 millions amount of times, leading to 11 millions number of registered mobile apps users. Number of transaction and value of transactions went up meaningfully. This helped us attract and retain more saving deposits and at the same time, lowering the cost of funding in saving deposit as shown on the bottom left chart. The combination of higher-yielding assets and lower cost of funds through various efforts have led to improvement in NIM, as you can see on the right-hand side chart. Next, operational costs had improved in first quarter. On bank-only term, our cost-to-income ratio had come down to 36.3% and cost-to-asset ratio down to 2.4%. Some data points on the right-hand chart show increase in productivity in branches or for employee, which also helped in achieving efficiencies. Indeed, over the past 10 years, asset per branch ratio had gone up meaningfully. The same goes to number of debit cards holder per ATM, which went up as most of the customers' transactions are done through our super app Livin'. Equally positive, PPOP to employee has gone up as well. This slide provides a quick summary of our subsidiaries performance. On aggregate, assets managed under subsidiaries grew 16% year-on-year in first quarter, driven by BSI, AXA Financial Mandiri Services, Mandiri Taspen and Mandiri Tunas Finance. Aggregate subsidiaries contributed IDR 976 billion in profit or 12% higher year-on-year. We expect this positive trend to continue in the coming quarters. The strong consolidated growth in PPOP and net profit in first quarter of 25% and 70% year-on-year respectively had resulted in a multi-year's high quarterly ROE of 18.1%. With all the initiatives and strategy in place, we aim to keep ROE at around this level in the short, medium term. On guidance, we sharpen our NIM target between 5.1% to 5.5% range for 2022 and cost of credit between 1.4% to 1.7% while keeping loan growth unchanged. That is all from me. I will now pass on the presentation to Pak Sigit, our Chief Financial Officer. Please, Pak Sigit.

Thank you, Pak Darmawan. Ladies and gentlemen, now allow me to go through our financial highlight. Our total asset during the first quarter 2022 increased by 9.5% year-on-year, driven by 8.9% growth in loans and 27% increase in government bond and marketable securities, which is part of our effort to optimize the ample liquidity environment we are in. On the liability side, growth was driven by the increase of wholesale funding on the back of the first ESG report issuance in Indonesia amounted USD 500 million. CASA also grew by 12% year-on-year, led by the staffing deposit, which was 16% higher year-on-year. This combined with a lower time deposit grew CASA ratio to more than 70% consolidated as of March 2022. Relatively higher loan growth drove our bank-only loan-to-deposit ratio higher in first quarter 2022 to 83.7% from 80.4% in 4Q 2021. It is also worth noting that the bank on the LTR on the rupiah currency remained to be very low at around 79% in first quarter 2022. Forex LTR, however, is on the higher side. At the ratio such as the MIR, LCR, and NSFR are positioned swiftly and healthy. On the P&L side, net interest income was up 17% year-on-year to IDR 20.5 trillion in first quarter 2022, driven by the improving net interest margin trend we showed during the quarter. Non-interest income was up 13.6% in first quarter 2022, supported by a gain in recovery, higher loan and deposit-related fees and fees from the mobile app New Livin'. Total revenue grew by 16% year-on-year to IDR 29.7 trillion higher compared to the growth in operational cost of 4.6%, leading to a positive [indiscernible] and lower cost income ratio. Pre-provision operating profit was 25% higher in first quarter 2022, both in year-on-year term and Q-on-Q term. Furthermore, our provisioning was down meaningfully during the first quarter 2022, which helped net profit to grow by 69.5% year-on-year to IDR 10 trillion. Most of the key consolidated ratio are showing positive results in the first quarter 2022, starting with net interest margin, which was 5.3% or 13 basis points higher Q-on-Q and 21 basis points higher year-on-year. Our cost to income ratio came down to 40% from level above 45% in the last couple of years. Equally, cost-to-asset ratio had also come down to 2.77%. Asset quality ratio are showing encouraging trend in general and credit costs were kept at very healthy level of 1.57% during the quarter. All the above led to the increase of the consolidated return on asset to 2.32% in the first quarter 2022 and return on equity to 18.1%. The next slide saw the group's loan and deposit breakdown. In line with our strategy, growth of loans during first quarter 2022 was led by commercial at 9% year-on-year. SME and micro at 11% year-on-year and consumer at 8.9%. Our subsidiaries also contributed meaningfully to growth at 11.9%. On deposits, we deemphasized our time deposit with 9% drop year-on-year, while focus growth was largely on the tip funding as surfing deposit and demand deposit, as you can see on the right-hand chart. Our strategy moving towards higher leading asset has helped us stabilize our loan yield trajectory, which saw a sequential improvement in first quarter 2022, as you can see in the top left chart. At the same time, our initiative on CASA had led to decline of our funding costs. Both combined supported the uptrend in net interest margin. The bottom right shows the net interest margin of bank-only as well as key subsidiaries, BSI and Bank Mantap. With a relatively stable net interest margin trend in both subsidiaries, we were able to improve our consolidated NIM as well in first quarter 2022 to 5.3%. Our consolidated noninterest income saw a growth of 13.6% year-on-year in first quarter 2022. Higher recoveries, loan and deposit related as well as e-channel fees more than offset the decline we saw in gain from fixed income. Our consolidated noninterest income to total revenue remained at a healthy level of 29.1% during the quarter. Trend in operating costs during first quarter 2022 was good with both cost-to-income ratio and cost to asset trending down. In first quarter 2022, our consolidated cost-to-asset ratio was 2.8% and cost-to-income ratio 40%, lower relative to historical levels. I would like to now pass the presentation to Pak Siddik, our Risk Director, please Pak Siddik.

Thank you, Pak Sigit. Ladies and gentlemen, now please allow me to run through some updates on the asset quality trend up to the first quarter 2022. Overall, the indicators that you see on this slide are showing positive progress for the group. The COVID-19 restructure will continue to decline as shown in the top left chart, which resulted in falling loans at risk on the top right chart. The trend in the NPL ratio was also encouraging with a consolidated level of 2.66% as of the first quarter of 2022. As a result of the above, we were able to lower our credit cost to 1.45% paying only and 1.57% on a consolidated basis on the first quarter 2022, lower compared to the previous quarter and the previous year. We intend to keep our credit cost level between 1.4% to 1.7% as stated by our CEO, earlier. On this slide, we would like to emphasize the healthy provisioning coverage that the bank had set aside. Our NPL coverage remains quite high at 247% as of the first quarter, which is higher quarter-on-quarter and year-on-year and on a wider coverage perspective, which is loan loss reserve to loan ratio, we are now at about 7.2% among the highest in the industry. Our loans at risk coverage is also very healthy at 64 if we exclude the coffee restructure booked and about 39% including it. Next, I'd like to discuss about our COVID-19 restructure book positioning and risk profile in more detail as of March 2022. The outstanding bank only COVID-restructured loans dropped to IDR 67.7 trillion, lower compared to IND 70 trillion in the fourth quarter last year. The decline was driven by the exit of previously low-risk accounts, which now makes 44% of total COVID-restructured book. Medium-risk and high-risk COVID restructured loan remained manageable at around 40% and 16%, respectively. As you can see on the table. Note that the provision set aside for particularly a high-risk group is 63% as of the first quarter 2022. Lastly, the total provisioning level had reached 16.7% of the restructured book, multiple times higher than the 2.45% NPL ratio that we have identified from this COVID portfolio, which I will go into more details in the next slide. We will have to continue to watch these accounts very closely and continue monitoring existing COVID-19 restructured book to adjust our provisioning level if needed. The following slide shows the performance of NPL ratio in our COVID-19 restructured book. As of the first quarter the ratio stood at 2.45%, where NPL was at IDR 1.66 trillion against a total COVID book of IDR 67.7 trillion. On a breakdown by segment, consumer banking and micro banking took the bigger portion of the NPLs of around 79%, followed by a semi-banking and wholesale corporate banking as well as commercial banking. Once again, the 16.7% provisioning level for COVID-restructured loans we saw in the previous slide suggests that Mandiri has a good buffer shouldn't be a surprise on the negative. Of course, the likelihood of any surprises will depend on the development of the C-19 crisis, the government actions to content the crisis as well as the economic recovery and all other moving variables, which we have to continue to monitor closely. As regard to the credit cost, we ended the first quarter with 1.57% on a consolidated level, meaningfully lower as compared to the 2.1% we booked last year as a group. Moreover, the bank-only cost of credit has dropped to about 1.45%, slowly approaching the pre-COVID level. Although we acknowledge that COVID-19 is not out of the woods yet, we believe that the business recovery is more likely to happen this year as activities are returning closer to normal, hopefully. The coverage level, we have kept at 247% for NPLs is another ratio suggesting that Mandiri has sufficient buffer in the event of the unexpected. Finally, I'd like to give you an update on our capital positioning. In general, the CAR level, which is at 18.2% in the first quarter is well capped within the optimal level. It is worth noting the seasonality low CAR during the first quarters of every year. On a yearly context, we intend to maintain CAR and Tier 1 ratio at around 18% to 20% range in the near to medium term. I'd like now to pass the presentation over to Tim Utama as our Chief Technology Officer, to discuss more on our digital initiatives and its performance. Please, Pak Tim.

Thank you, Pak Siddik. Ladies and gentlemen, allow me to give a brief update of our digital progress. And as you can see on the chart where, you know, we launched our Livin' in last year in October. And since we launched actually Livin' has been downloaded over 12 million times. And from the chart, you can tell that the growth of the users has been very encouraging. We have seen a 51% growth where total number of Livin's now users have reached 11 million. And if we follow that with the number of transactions, it is actually very encouraging. We see a 71% increase in the frequency. So what does it mean? It means that I think our client believes we -- the clients believe that what they see in the apps have got use cases. Therefore, it pushes up the frequency of the transactions to a very encouraging number that touch 71%. Equally, the gross transaction value for the first quarter grew nearly 50% to IDR 508 trillion. If we compare what we have seen in Livin' to what we have in ATM, the transactions in Livin' actually has surpassed that of ATM in a significant way, both in the transaction value and volume. And again, it shows that people have shifted doing the transactions that previously done in the ATM machines. Now they moved to Livin' for their day-to-day needs. What is left in ATM is basically the actual cash transaction or cash withdrawals. And what is equally interesting is actually we have since the launch of Livin', 1 million new to bank accounts opened digitally on this app. And this can be done reasonably fast and usually, we time it, we measure it. Normally, it can hit about 95% up to 5 minutes, but not more than 10 minutes, 100%. So this is very encouraging. In less than 6 months, we have seen a number of 1 million new accounts open. And usually, we don't see this in the market. So that's very encouraging. So if I can move to the next slide. This is where many times, we got to ask with the changes in the landscape of fast payment in Indonesia. Those that have been following us know that the Central Bank introduced BI Fast. BI Fast was introduced late last year in December. And the pressure on fees actually of BI Fast has been offset significantly because of the higher transfers that we saw in Livin'. So the fee base, we are very happy to report it has gone up significantly to a much higher number despite that BI Fast has actually taken down its fees for transfers from -- compared to that of the traditional transfers. And the composition of BI Fast actually has been growing quite fast. But because of the ability for us to drive the volume that is not only from transfers, but from all other transactions, we can sustain even drive a higher fee-based income. So what I can say about BI Fast, I think our timing was very good with that. And Livin' was designed specifically to address the financial needs of our clients as well as other day-to-day needs. Therefore, it pushes up to the number of transactions with the right use cases that clients can use. So at the end of the day, I think what I would like to stress here is with Livin', we create ecosystem, where in that ecosystem, we can see transactions going up financially and also for other needs, which I will cover later in the following slides. If I move to the next slide, I think what I would like to report as a very encouraging outcome is the higher users' stickiness will drive a good outcome, which is the cost of funds at the end of the day for our bank and that has been covered by my colleagues before. But here, you can see on the chart where the bars represent the number of transactions per person that has gone up significantly. And by Livin' because of the use cases that we believe that has been built, that has been responded positively. So that increase from 16% to 25% since the -- with the latest number, but -- and we believe that is going to continue to grow. And the other piece that is very encouraging is the fact that the transactions within the Bank Mandiri ecosystem is actually growing. So what does it mean? It means that money that is transacted between account holders are within the Bank Mandiri ecosystem. And then the other very encouraging outcome is the number of accounts that I mentioned earlier has got a percentage of 20% now open accounts done digitally through Livin'. So that is -- I think, is a very, very good number considering that we've only launched this for 6 months. So the outcome is actually reasonably clear. It pushes down the cost of funds by about 50 basis points, as you can see on the right-hand chart. At the same time, the balances of the demand deposit or savings account keep growing. So that's, again, a testimony of the market as responding very strongly to the launch of our super app Livin'. If I can move to the next page. I would like to just touch a bit in terms of what the super app is all about. So behind the super app, we actually developed and invested significantly in modern technology stack, completely a digital native. And what it does, it gives us the agility, whereby we can accelerate time to market, releases of new cases, and that would generate new revenue streams. So from that perspective, you can see and you will expect to see launches that we have been doing now. And next month, for example, after the Lebaran holidays, we will be releasing 2 new buttons, if you like. The first one is actually a use case for investment. And that will be launched along the site with the lifestyle button that we call it for [Foreign Language] in Indonesian context. So what it does is now all our clients will be able to invest in mutual funds and what it will provide is actually different to perhaps some other competitors that we have that the for mutual funds now everything is built in one app, our super app Livin'. Other banks may have that in different apps that is outside their main apps. And the other piece is actually why we built it here when people are able to invest, obviously, peace of mind of security is going to be very important. And we believe the Livin' brand by Mandiri will provide that ability to give investors that peace of mind and we also democratized investment. The ticket size can be as low as IDR 100,000 to make investment in mutual funds. So that hopefully will provide a very different prospect and new revenue streams to the bank. In terms of lifestyle, I think I've mentioned that briefly, we will introduce a lifestyle button where clients are able to, for example, buy tickets for the holidays. We combine it with AI. We do packages and also other stuff like go off reservations and the likes. So, and then following that, we will also launch our smart branch concept that is going to be there integrated in our Livin'. So now let me move gear to give you a bit of brief update on in terms of our wholesale super platform, which is Kopra. On the screen, you can see that overall Kopra actually has really helped Mandiri being positioned and you can see that the opportunity is enormous. We have seen significant growth from the transactions, be it in trade and guarantee cash management, FX. These are the major components in Kopra and transaction volumes and values has grown significantly. Volume has almost doubled. Value, again, has touched almost 64%, which is completely showing a good response from the market. And the registered users, again, absolutely a significant increase in the percentages that is shown there, IDR 189 and then followed with a fee-based income that is growing significantly to -- by 98% to IDR 175 billion in the first quarter 2022. So I think what KOPRA does is actually positioning the bank to become the operating banks for our clients. So you can see that we have done the research where -- with KOPRA, it will increase the product holdings of each client. So with that, actually, the corresponding increase is significant. If a client has got one product holding versus 5 product holdings, the current account average balances will increase significantly from IDR 0.3 billion to IDR 25 billion when you have a higher number of product holdings. So you can see that on the chart, we've broken down the number of product holdings that is based on today's contacts from our portfolio. So what it does is it gives us enormous opportunity. If we just move up the percentages from one product holding to 3 product holding, the average balance will go up 10 times. So that is actually giving us an upside going forward that we'll keep pushing providing the right use cases for our KOPRA. And what it does, obviously is a reduction week on ODC with the increase in our CASA. The cost of funds has dropped significantly from 2% to 1.4%, as you can see on the chart on the right-hand side. So I'll move on to the next slide, which is my last slide. So what Kopra is beyond just the products that you have seen before, the ability to provide the cash management trade and custody, FX and the like. What really is going to be coming to this full story of co-price, the ability to create value chain for our wholesale clients. And when we create this value chain, you can see that the potential is enormous. The corporate clients have -- actually, we've identified now 100,000 potential suppliers that we can finance as well as 30,000 potential distributors that we can finance. This is just based on the principles that we are today managing at the top level. So what you can see is a potential increase in terms of loans for supply financing as well as distributor financing. So with that, I think this is going to be our focus going forward. So we look forward to having this opportunity and drive it through where we become the operating bank accounts for our clients because we have the ability to provide the right use cases and solve their problems with solutioning in the value chain context. So with that, I will stop here and pass it back to Pak Siddik, who will elaborate more on the ESG. Please, Pak Siddik.

Thank you, Pak Tim. Ladies and gentlemen, let me now touch on our ESG initiatives. In general, we're on track and very much aligned with the banking regulation on sustainable practices under POJK 51, which covers sustainable financial products and services, human resources and corporate governance. Some of our sustainable financial product and services are the USD 300 million worth of sustainable bonds we issued last year. Our very recent ESG repo worth USD 500 million, electric vehicle financing for retail customers and sustainable loans. In addition, we also continuously educate our clients through workshops and group discussions forums. For the social aspect, we participated in several corporate social responsibility programs, along with loan disbursement through our financial inclusion channel, such as agent banking, P2P lenders, et cetera. Our sustainable portfolio has gradually increased throughout the year. As of first quarter of 2022, about 25% of the total loans is categorized as sustainable portfolio, which consists of 50% MSMEs, 42% sustainable palm oil and the remaining being financing towards renewable energy, clean transportation and more. Moreover, Bank Mandiri is committed to support sustainable banking by prohibiting financing projects that endanger the environment and social and some of the credit policies can be seen on the right-hand side of the slide. This slide provides a specific update on our palm oil exposure. Out of the total outstanding IDR 86 trillion in the first quarter, about 80% is wholesale corporate banking and commercial banking, while 20% are SME and micro business, which are largely lending to the plasma farmers. Mandiri is currently actively financing more than 70,000 CPO farmers. Moreover, we also have a strong policy in managing palm oil sectors. Some of the criteria we ask in our debtors are ISPO certification requirement, no child labor and growing palm tree in sustainable land, no peatland policy. Some of these policies can be seen on the upper right part of the slide. The bottom-right chart provides an update of the mix between ISPO certified and uncertified palm oil related loans. Here, we believe we are making a good progress of currently having around 90% of our exposure in certified ones. On sustainable operations, we have implemented various initiatives to reduce GHG greenhouse gas emissions. One of the initiatives is the collaboration with PLN for electric vehicle as operational cars, the first in Indonesia. We also strive to save on energy consumption considering that energy use is closely related to emissions, which eventually has an impact to climate change. Our digital platform also contributes to lowering carbon footprint. For instance, we launched the Livin Super App, as described by Pak Tim for our retail customers in October last year. The app usage had led to lower transaction done in ATM or branches. Less mobility is required to do a transaction with us, which is good in context of the carbon footprint. Even account opening can be made through Livin' paperless, for example. Lastly, diversity is a corporate culture value for Bank Mandiri. We believe that diversity brings creativity that may not be found in a homogeneous working environment. The bottom left chart provides a quick detail of the demographic of our employees. Lastly, through various channels, Bank Mandiri has carried out several CSR and financial inclusion initiatives that have had had a positive impact on approximately 640,000 Indonesians through. The first one is Mandiri Andiri Sahabatku program, which provides entrepreneurship and financial management training program to around 14,992 Indonesian migrant workers. Second one is collaboration with Fintech companies such as Amartha, Crowde, [ Acceleron ] and [indiscernible] with loans that have been disbursed amounting to IDR 1.2 trillion to more 81,300 non-borrowers who are mostly micro customers. The third one is program for distributing banking product to all corners of Indonesia and providing job opportunities through 163,000 banking agents. That is all for me, and I'll hand back the presentation back to Lau for Q&A session. Thank you.

Thank you very much to all speakers. Ladies and gentlemen, now we are entering the Q&A session. And we would like to limit maximum 2 questions per person. The first question comes from the line of Harsh Modi. Please ask your questions. JPMorgan. Thank you.

First one is on provisions. You lowered the guidance. How shall we think about normalized provision numbers for the bank over the next 2 to 3 years? And do you expect the way things are going to ultimately hit a number below normalized? That's one. Second, on the cost-income ratio, pretty solid cost numbers. How do you expect that to fare in the course of the year? Do you think there's enough of revenue upside to offset any kind of cost pressures and how are you looking at inflation impacting your cost base in course of 2022?

Thank you, Harsh. Maybe the credit cost question goes to Siddik, and we'll get to the cost-income ratio after that. Thank you. Please, Pak Siddik.

Okay. Thank you for the question, Harsh. The normalized credit provision or cost of credit numbers in the long run or steady state, I would -- we've done some simulation depending on the mix of the credit portfolio that we have by segment. And as per our recent strategy to actually increase the mix of the higher-yielding segment, which is -- which are commercial banking, SME lending and micro lending to a higher proportion and with the very good quality of credit underwriting, that kind of higher mix we would expect that we would maintain it between 1% to 1.4% on a steady-state basis in the long run. I think those -- the question that you said, whether it is possible to actually achieve below 1% cost of credit. That depends because, again, if we were to go more into the wholesale banking growth phenomena, which is corporate banking mostly, then we would be able to achieve probably lower than 1% of cost of credit, but maybe at the expense of volume because we see that the higher margin and the higher opportunity for growth will be from the commercial banking, SME and micro, including consumer banking going forward. That's why one of our strategy is actually to increase the mix of the retail banking part going forward so that opportunity to actually hire -- to get higher margin will be higher in the future. So between 100 to 140 basis points, that's our take for now. Thank you, Pak Siddik. Maybe on the cost income ratio, Pak Sigit, Please go ahead. Thank you.

Yes. Thank you. Yes. We expect to maintain our cost income ratio at least below 40%. And for the bank only today, we already rates around 36%. So we except in the long term, 40% -- below 40% is our expectation. And as Pak Darmawan mentioned that we focus to increase productivity as whatever mentioned in the previous slide because we are success to improve our PPOP per employee and then asset per brand. I think we will continue to shifting or changing strategy with focusing on our digital initiative. And we also expect to maximize our platform, digital, corporate and Livin' as a support to growing business in the future. So we expect that this is our strategy to maintain our cost-to-income ratio at below 40%.

Maybe just to add on the point on inflation. So maybe just to provide a context, we are officially expecting an inflationary environment of roughly about 4% to 5% this year. And the cost-income ratio that we have, which is below 40% have already incorporated that assumption. And I think it's very important to note that the key here is the ability of the bank to also boost the revenues. So again, it's a 4% average increase in the cost side of things. We do believe that there is a potential increase in revenues coming from the new streams of Livin', the fee income from KOPRA Livin'. The improving NIM that we're witnessing that is not coincidental. It's very much within our strategy of going to a high yield. So ultimately, we think that jobs can be kept positively, and that including -- and considering the 4% to 5% inflationary rate that we're expecting in our assets.

If I can just slip in one more question. On cost, on CET1 ratio, there was a very sharp decline of almost 150 bps. Could you just -- and it seems like Bank Syariah Indonesia had a very sharp decline in car as well. So could you just explain where those Tier 1 shifts came about from.

Yes. So basically, on the CAR level, Harsh, I think one thing that is worth noting is the seasonality that we have in the first quarter. In the slide that you would probably have in front of you, you'll see that we provide an example of the first quarter 2021, which was also at about 18% level, but it sort of normalized towards the end of last year. If you look at the 2021 level, the full year, the December level, then that will be to the 19% level. So the quarter first quarter decline in Q-on-Q tend to be very, very seasonal, Harsh. Thank you. The next question has come from the line of Jayden from Macquarie. Please go and ask your question. Thank you.

Well done on the first quarter, and thanks for also upgrading the guidance and showing the conviction. The 2 questions I have. First, around cash recoveries. It was quite strong in the first quarter. It almost doubled. What's the view on how that can sort of remain for the rest of the year? Is there some sort of recovery target that you have, obviously, as the economy improves? And my second question is around loan repricing. You mentioned that your expectation is 50 to 75 basis points of higher rates. And the NIM has been strong off the back of the strategy as you mentioned, now on pivoting the loan portfolio. But what's your thoughts around repricing maybe in the second half and the competitive environment? Those are my 2 questions.

On recovery, Pak Siddik, perhaps, yes. Okay, thank you. And on the repricing ones, Pak Sigit, our CFO, will address that one.

Okay. On recoveries, I think we have a very strong number in the first quarter, but that's driven by one big recovery from our wholesale banking, which was achieved by our special asset management team. And that number may not, I guess, repeat itself because these are one-off things. If you look at our latest forecast for recovery for full year, so we are aiming as of now to achieve total recovery from retail accounts of around IDR 5 trillion towards end of the year. This is compared to IDR 4.6 trillion in 2021. So as we achieve about IDR 400 billion increase in recovery for the full year this year.

Thank you, Pak Siddik. Pak Sigit, go ahead on the repricing profile. Thank you.

Yes. We have an internal calculation that because of our loan today around 85%. Our loan is non-fixed rate. So we have opportunity to repricing if this situation if this situation if BI rate increase, for example, 50 to 75 basis points. And also we expect that our internal calculation, if the BI Rate increased 25 basis points, its impact to our net interest margin around 8% to 11%. So we believe that increase of BI rate is positive to Bank Mandiri because we have an opportunity to reprice our loan. And we also see that around 30% of our corporate alone is a reference rate. So automatically, when the price increase, we can adjust the price to our debtor.

Thank you Pak Sigit and maybe just to add as well, Jayden, when it comes to existing loans, existing ones in our book, there are 80% of them that are re-priceable. But more importantly as well is the level of rates that we provide to the new loans, which is typically about 100, 150 basis point higher than the current running yield. For example, we are looking at current running yield of about 5.5% for corporate loans, for instance. But if we look at the new loans that we sort of disbursed, we would basically change at the 6%, 6.5% level. Obviously, that can vary depending on the competition or and all the factors. But the new loans that we onboard in the subsequent quarters, even in the first quarter should theoretically be yield accretive as well for the bank. Thank you.

So next question coming from -- last question. Sorry, one last question coming from the line of Melissa Kuang. Go ahead.

Just on the margins, in terms of your margin guidance of 5.1% to 5.5%, does it take into any consideration the ability to pass through the rates or would most of it come from your loan mix split. Maybe you can give us a little bit of a breakdown as to how much from the loan mix and how much from the margin if BI were to raise rates, that will be helpful. Then in terms of the second question, just wanted to ask in terms of the supply chain of the SMEs you were talking earlier in the corporate and identifying those. Are those SMEs already banked by other banks and how you're going to bring them over onto the Mandiri platform or are these SMEs currently not bank and you have just found these new opportunities that you're going into. Thank you.

Thank you Melissa of Goldman Sachs. Pak Sigit, on the first question on the NIM, whether or not it is a function of loan mix or repricing. Go ahead. Thank you.

Thank you Melissa. Yes, we revised our guidance up mainly coming from loan mix. We expect to shifting our retail from 34 to 36 in the next years. And then we also shifting our loan growth into high-yielding assets such as SME, commercial, also micro. And then we also focus of growth in investment loan compared with working capital because we believe that investment loan has a higher yield compared with working capital. For the repricing loan price, I think it's bonus if we can do in the second semester when the added increase, we, of course, try to see the opportunity. But I think focus for Bank Mandiri shifting to high-yielding asset.

Yes. Thank you very much, Pak Sigit. So in short, a big driver of our NIM improvement lays on the change in loan mix, obviously, as well as the cost of funds. Re-pricing will be very much case by case, re-pricing is something that is not within the control of the bank. It will depend very much on the competition environment, et cetera, et cetera. So if re-pricing environment is easier than our expectation, then that is going to be more of a bonus for us as opposed to plan A strategy when it comes to the NIM. Now let me just address the other question regarding the potential SME and value chains. Let us get back to in terms of data and the precise answer to this. But it's really a mix, right? So it's either those that has been with the bank, but there is potential to basically increase limits or really suppliers or distributors that is not yet with the bank, but attached with the bank's value chain, right? So it has somehow a business relationship with Bank Mandiri's key corporate clients, key wholesale clients. And of course, that's something that we see as upside potential. In terms of how much of them are banking with other banks and therefore, an opportunity for us to grab market share, we'll get back to you to that after the meeting. So I guess that is the last question. With this, I would like to close -- end this meeting. Thank you very much. Pak Darmawan, Pak Siddik, Pak Sigit, Pak Tim, thank you.